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Patent trolls as financial intermediaries? Experimental evidence

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  • Haber, Stephen H.
  • Werfel, Seth H.

Abstract

Recent work suggests that Patent Assertion Entities (PAEs)—or “patent trolls”—are a new form of financial intermediary. According to this view, individual patent holders are unable to contract with large manufacturers because they lack the financial resources necessary to litigate against infringement. Since individual patent holders are heterogeneous in their constraints and preferences, the market function of PAEs should depend on their specific demands. We conducted an experiment in which subjects from a population of interest were each assigned patents that were infringed by large manufacturers in a hypothetical scenario. We relaxed the financial constraints of some patent holders and evaluated whether this randomized intervention subsequently reduced the demand for PAEs relative to costly litigation. Our results indicate that PAEs served an intermediary function for two groups in our sample: subjects who identified as inventors rather than entrepreneurs, and subjects who were relatively more sensitive to financial losses.

Suggested Citation

  • Haber, Stephen H. & Werfel, Seth H., 2016. "Patent trolls as financial intermediaries? Experimental evidence," Economics Letters, Elsevier, vol. 149(C), pages 64-66.
    • Handle: RePEc:eee:ecolet:v:149:y:2016:i:c:p:64-66
    DOI: 10.1016/j.econlet.2016.10.002
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    References listed on IDEAS

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    3. Daniel Kahneman & Amos Tversky, 2013. "Prospect Theory: An Analysis of Decision Under Risk," World Scientific Book Chapters, in: Leonard C MacLean & William T Ziemba (ed.), HANDBOOK OF THE FUNDAMENTALS OF FINANCIAL DECISION MAKING Part I, chapter 6, pages 99-127, World Scientific Publishing Co. Pte. Ltd..
    4. Andrei Hagiu & David B. Yoffie, 2013. "The New Patent Intermediaries: Platforms, Defensive Aggregators, and Super-Aggregators," Journal of Economic Perspectives, American Economic Association, vol. 27(1), pages 45-66, Winter.
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    Cited by:

    1. Sterzi, Valerio & Rameshkoumar, Jean-Paul & Van Der Pol, Johannes, 2021. "Non-practicing entities and transparency of patent ownership in Europe: the case of UK dormant companies," Technological Forecasting and Social Change, Elsevier, vol. 172(C).
    2. Lauren Cohen & Umit G. Gurun & Scott Duke Kominers, 2019. "Patent Trolls: Evidence from Targeted Firms," Management Science, INFORMS, vol. 65(12), pages 5461-5486, December.
    3. Figueroa, Nicolás & Serrano, Carlos J., 2019. "Patent trading flows of small and large firms," Research Policy, Elsevier, vol. 48(7), pages 1601-1616.
    4. Bronwyn H Hall, 2019. "Is there a role for patents in the financing of new innovative firms?," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 28(3), pages 657-680.
    5. Sterzi, Valerio & Maronero, Cecilia & Orsatti, Gianluca & Vezzulli, Andrea, 2023. "Non-Practicing Entities and their patent acquisition activity in Europe," Department of Economics and Statistics Cognetti de Martiis LEI & BRICK - Laboratory of Economics of Innovation "Franco Momigliano", Bureau of Research in Innovation, Complexity and Knowledge, Collegio 202306, University of Turin.
    6. Kwon, Seokbeom & Drev, Matej, 2020. "Defensive Patent Aggregators as Shields against Patent Assertion Entities? Theoretical and Empirical Analysis," Technological Forecasting and Social Change, Elsevier, vol. 151(C).

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    More about this item

    Keywords

    Patent assertion entities; Financial intermediation; Inventors; Experiments;
    All these keywords.

    JEL classification:

    • O34 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Intellectual Property and Intellectual Capital
    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors

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